Seasonal factors point to some type of setback -Carson Group

<html xmlns=""><head><title>LIVE MARKETS-Seasonal factors point to some type of setback -Carson Group</title></head><body>

Main U.S. indexes decline: Nasdaq off most, down ~2.5%

Tech weakest S&P 500 sector; staples lead gainers

Euro STOXX 600 index ends down ~1.4%

Dollar, bitcoin gain; gold off; crude slides >2.5%

U.S. 10-Year Treasury yield rises to ~4.09%

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The S&P 500 index .SPX ended July up for a fifth-straight month.

However, August has kicked off with weakness. The benchmark index is now off about 1.6% so far for the month, though still up nearly 18% on the year.

In any event, Ryan Detrick, chief market strategist at The Carson Group, says his firm came into the year overweight stocks and remains there. However, he cautions that the odds are increasing that stocks could finally take some type of a break.

Detrick notes that seasonality has worked out perfectly this year. He says that some of the very best quarters out of the entire four-year Presidential cycle were the three now just in the books. That said, seasonality is now saying to be open to some type of weakness, or at least a break.

"To be clear, we do not expect major weakness. But we believe a modest pullback of approximately 5% would be perfectly normal," writes Detrick in a note.

According to Detrick, one issue is the "austere month of August." He notes that August has been a poor performer, ranking worse than only February and September since 1950 and lagging behind only September and December over the last 10 years. Although, he adds it's still averaging a positive return over both periods.

On top of this, next up is September, the weakest month seasonally. So, while the calendar was a tailwind, he believes it's now flipping to a near-term headwind.

If stocks experience weakness over the coming months, Detrick believes investors should keep in mind that it could be entirely normal seasonal behavior. In fact, he believes it may present buying opportunities, or it may simply be a chance to stay the course and remind ourselves that most years see more than three separate 5% pullbacks.

"All in all, the odds are increasing that stocks could see some seasonal weakness, but we don't think it will be anything major. In fact, maybe a little breather could be just what the bulls need for an eventual strong end-of-year rally."

(Terence Gabriel)



Fitch Ratings surprise downgrade of the U.S. credit rating on Tuesday and the worsening fiscal picture of the United States that it references may have a negative impact on the long-term outlook for the U.S. currency, as some countries move to reduce their reliance on the greenback.

Fitch cut its rating on U.S. debt from the top AAA, to AA+, the second highest investment grade. It cited fiscal deterioration over the next three years and repeated down-the-wire debt ceiling negotiations that threaten the government’s ability to pay its bills.

"Data shows the U.S. combined (fiscal and current account) deficit is widening and now stands at 10.2%/GDP, the widest (outside of the COVID period) since 2012," Scotia Capital analyst Shaun Osborne said in a report.

"At the margin, these developments add to structural headwinds for the USD in the medium/longer run and may add to investor concerns about 'de-dollarization' trends as central bank reserve managers reduce exposure to the USD," he said.

(Karen Brettell)



Baltic states - Latvia, Lithuania and Estonia - have the largest percentage of private equity and venture capital penetration in the European Union and the UK, according to private company data from S&P Global Market Intelligence.

The EU combined has a private equity penetration rate of 0.49%, while the UK has a penetration rate of 0.35%, the note showed, while Latvia is at 3.54%, Lithuania at 2.24% and Estonia at 1.34%.

"Baltic states have structural drivers that make them attractive for private equity," Rustam Kurmakaev, principal at Mid Europa Partners LLP in the UK, said in the note.

"You have very good economic growth, historically and projected, and also have the stability and transparency of EU institutions and single currency. Second, similar to other parts of Central Europe, (Baltic nations) do benefit from a well-educated workforce."

Baltic states also have smaller venture funding rounds, with the median deal size from January 2020 to July 21, 2023, at $1.3 million, the note added.

Among sectors, technology, media and telecommunications continue to dominate PE and VC investments in Europe.

In the first half of the year, 42% of all private equity investments were in the TMT sector, Market Intelligence data showed.

(Bansari Mayur Kamdar)



Shares on Wall Street are on the defensive early on Wednesday in the wake of Fitch's move late Tuesday to downgrade the U.S. government's credit rating.

Fitch downgraded the United States to AA+ from AAA, citing fiscal deterioration over the next three years as well as a growing general government debt burden. This is the second major rating agency after Standard & Poor's move in 2011 to strip the country of its triple-A rating.

The move hit risk assets, and ironically is driving a move to the safe-haven dollar.

"It's all relative. In spite all of its warts, the U.S. is still the cleanest dirty shirt in the hamper and that is limiting the negative fallout from the Fitch downgrade, as well as the impact of increased Treasury borrowings," writes Action Economics in a blog.

"The firming in the dollar index pretty much says it all. That the U.S. looks to have averted the long feared recession also is a positive for the markets given the slump in Europe and the slowing in China."

Megacap stocks such as Tesla TSLA.O, Nvidia NVDA.O, Meta Platforms META.O and Microsoft MSFT.O are all trading down on the day.

Advanced Micro Devices AMD.O is up, however, after forecasting an upbeat finish to the year and following plans to launch AI chips that could compete with market leader Nvidia.

An ADP National Employment report, meanwhile, showing a big jump in private payrolls had little impact on stocks as the Fitch downgrade seems to the major driver.

Here is a morning snapshot of all asset classes across financial markets:

(Gertrude Chavez-Dreyfuss)



With a bulk of second quarter earnings season behind us, the Wall Street rally is showing some signs of exhaustion.

About 80% of the 292 S&P 500 .SPX companies that have reported second quarter earnings as of Tuesday have topped analyst expectations, according Refinitiv IBES data. This compares to an average beat-rate of 66% in a typical quarter since 1994.

While the number of companies beating expectations is well above the recent average, volatility in shares is not.

Credit Suisse said companies beating on both revenues and earnings per share are outperforming the market by 0.7% compared to an average of 1.7%.

"The playbook that we've seen over the last five quarters given the resiliency of earnings has continued," said Dave Wagner, portfolio manager at Aptus Capital Advisors.

But "if you look at companies that have beat on the top line and also the bottom line, they've actually underperformed the S&P 500 and that tells me there may be some type of exhaustion in the market right now," Wagner added.

Indeed, image-sharing platform Pinterest PINS.N beat Wall Street targets for second-quarter results, but its shares are off around 4% on Wednesday, compared to 0.6% drop in the S&P 500 futures.

And yet, "the path of least resistance continues to be higher," Wagner said as he expects value stocks to drive markets higher from here as megacap growth stocks pause.

"I'm a big fan of energy right now," he added.

Value companies are delivering stronger revenue and profit increases than growth. Credit Suisse said results from value are beating expectations by 8.1% compared to 3.4% for growth.

Meanwhile, JPM's trading desk said in a note a record high in the S&P 500 "feels inevitable," but the question becomes whether that new all-time high would be "4,800 or 5,000 … or higher."

The S&P 500 closed at 4,576.73 on Tuesday, about 5% away from its 2021 peak.

(Medha Singh)



Advanced Micro Devices AMD.O on Tuesday forecast a strong finish to the year, driven by the planned launch of artificial-intelligence chips that could compete with Nvidia NVDA.O semiconductors. AMD shares are gaining about 2% premarket.

In any event, with the main equity index futures red ahead of Wednesday's open, the VanEck Semiconductor ETF SMH.O is trading off just over 1%.

However, of note, this week, the Philadelphia SE Semiconductor index .SOX, met the minimum pattern projection of an inverse head & shoulders pattern which formed from mid-2022 to early-2023:

In the wake of its late-January breakout above the pattern's neckline, the minimum projection called for an eventual rise to levels in excess of 3,800, and more specifically 3,870.

On Monday, the SOX hit a high of 3,875.171. It ended Tuesday at 3,858.211.

Through Tuesday's close, the chip index is up 52.4% so far this year vs a 45.9% rise for the broader technology sector .SPLRCT, a 36.5% rise for the Nasdaq Composite .IXIC, and a 19.2% gain for the benchmark S&P 500 index .SPX.

As it stands, the advance appears intact with the SOX now within striking distance of its Dec. 27, 2021 record close at 4,039.512, and its Jan. 4, 2022 record intraday high at 4,068.146. These levels are around 4.7% to 5.4% above Tuesday's finish.

The mid-to-late July lows in the 3,662-3,647 area are now support. Since reclaiming the rising 50-day moving average on May 15, the SOX has not ended a session back below it. This intermediate-term moving average ended Tuesday at 3,604, and is rising 13 points or so per session. A close back below it may signal a developing trend change.

Meanwhile, through Tuesday, 28 of the 30 SOX members are higher in 2023, led by Nvidia's 218% surge. With this, the chipmaker/equipment maker ratio is higher so far this year as chipmakers have outperformed:

More recently, however, the ratio has fallen below its 10-DMA, which is now resistance. However, in late July, the ratio used the broken resistance line from its late-2022 high as support.

A breakout of the range defined by these two chart levels may signal the next bigger trend for chip makers vs equipment makers.

(Terence Gabriel)



(Terence Gabriel is a Reuters market analyst. The views expressed are his own)


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